Top 5 things a Tenant Needs to Know about a Commercial Lease – Before Signing It!

Is your business ready to move into its first or next office space? Here are five things you need to understand before you make a costly mistake in the selection of the space.

1. The differences between a Full-Service Lease and a Triple Net Lease, or: “Who Pays for the Utilities?”

A Full-Service Lease is one where the monthly rent includes the cost of utilities, property taxes, and maintenance/repair costs.

A Triple Net Lease does not include those items. The tenant will pay extra for them. Those costs could lead to a nasty surprise if something goes wrong.

A professional service provider learned this the hard way when she noticed a plumbing leak in the wall between her suite and another tenant’s. She wound up having to pay all of the repair expenses, including mold remediation, because she had a Triple Net Lease.

2. The Types of Co-tenants the Landlord Could bring into the Building or Complex.

Do you care about the types of businesses that are in the building or shopping center that you plan to occupy? Don’t assume the inoffensive coffee shop currently there won’t be replaced by an “adult book” shop.

Check the lease for language that prevents the landlord from bringing in businesses whose very nature could damage your company’s brand. If it isn’t there, ask for it!

3. Who Bears the Cost of Upgrading the Building?

Commercial buildings periodically need to be upgraded. IT wiring and systems have changed radically over the last 20 years, and it is important for owners to keep their buildings current. Increased demands for energy efficiency have also led to some costly retrofits.

Watch out for provisions that require (or could be read to require) the tenant to pay for a portion of these costs. At the very least, ask for a specific dollar limit during each year of the lease.

4. Does the Landlord’s Insurance Cover Your Company’s Property?

Most leases have clauses spelling out the types of insurance that each party is required to carry. The landlord’s duties usually include having things like fire insurance. Watch out for language in the lease that excludes your business property (e.g., computers) from the landlord’s insurance policy.

5. Your Responsibilities When You Move Out, or “How to Get Back Your Security Deposit.”

Most leases require a security deposit. Make sure the lease clearly spells out what the tenant must do in order to get 100% of it back. Watch out for language that gives the landlord “reasonable discretion,” or words to that effect. Strive to get language that is unambiguous.

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.